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China ETFs Could Strengthen as FTSE Russell Set A-Shares Inclusion

This article was originally published on ETFTrends.com.

Following on the heels of MSCI's decision to raise Chinese mainland stock exposure in its benchmark international indices, FTSE Russell also promoted China A-shares to emerging market status, fueling further demand for Chinese equity exposure and potentially enhancing country-related exchange traded funds.

FTSE Russell promoted China A-Shares to Secondary Emerging market status following its September 2018 annual country classification review.

"FTSE Russell is pleased to announce that the China A Shares market will be promoted to Emerging Markets status and included in FTSE’s global equity benchmarks from June 2019. China will also be added to our Watch List for possible inclusion in FTSE’s global bond indexes. The Chinese authorities have continued to introduce reforms designed to open their market to international investors and have transformed their economy into the second largest in the world. FTSE Russell was the first international index provider of mainland China benchmarks 20 years ago and we will continue to work with our global clients to provide benchmark and analytic solutions to facilitate their equity and fixed income investments in the region,” Mark Makepeace, CEO of FTSE Russell, said in a note.

The ongoing initiatives of Chinese authorities have helped improve global investor access to Chinese A-shares through reforms such as the Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) initiatives. Through these improvements and the recent enhancements to the Hong Kong Stock Connect program, China A-shares now meet the requirements for the FTSE Emerging Index.

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FTSE Russell will begin incorporating China A-shares from June 2019 over three separate tranches through March 2020. China A-shares inclusion will be calculated using 25% of investable market capitalization of the eligible large-, mid- and small-cap securities from the FTSE China A Stock Connect All Cap Index.

In the first phase, China A-shares are expected to make up 5.5% of the total FTSE Emerging Index. For the FTSE Global All Cap Index, China A-shares are expected to make up 0.57%.

As the demand for Chinese mainland stocks rises, the move for broader inclusion could be beneficial to an array of exchange traded funds that cover the Chinese A-shares market, including the VanEck Vectors ChinaAMC SME-ChiNext ETF (PEK) , VanEck Vectors ChinaAMC CSI 300 ETF (CNXT) , iShares MSCI China A ETF (CNYA) and db Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR) . These ETFs track China-listed company stocks on the Shanghai and Shenzhen Stock Exchanges.

For more information on Chinese markets, visit our China category.